How To Register A Canadian Non Profit or Registered Charity – Part 2 – Understanding Your Governance Responsibilities

Part 2 – Understanding Your Governance Responsibilities

By Randy Flewelling, President & CEO – Reverse Management Associates Inc.

In Part 1 of our 3 Part Series, How To Register A Canadian Non Profit Or Registered Charity, we explored the differences between a non profit and registered charity. We stressed how a little due diligence and planning can save you time, money and potential disappointment. In Part 2 we will discuss the governance responsibilities faced by management and boards of directors of Non Profits and in particular, Canadian Registered Charities.

Part 1: What is a Canadian Non Profit or Registered Charity?

Part 2: Understanding Your Governance Responsibilities

Part 3: Strategic Business Planning for Non Profits

Understanding Your Governance Responsibilities

The first step you and some like minded individuals (who would likely become your first board of directors if you proceed and form the organization) should take is to brainstorm – this is the beginning of Strategic Planning (see Part 3).  In this initial due diligence stage, you should try to address some basic questions, such as:

• Is the need that you are addressing ongoing or short term?
• Are there other organizations who are already addressing this need?
• What is unique about us or what is our niche?  There are many charitable organizations competing for attention and dollars.  You should be addressing a unique cause or a cause in a unique manner.  
• Do your planned purposes and activities clearly meet the guidelines established by the CRA?

What are Allowable CRA Charitable purposes and activities?

Charitable purposes must fall within at least 1 of 4 categories to be considered for approval as charity:

• the relief of poverty
• the advancement of education
• the advancement of religion
• certain other purposes that benefit the community in a way the courts have said are charitable

Allowable Charitable Activities: The activities you undertake must be allowable by CRA otherwise they will not grant or may revoke your Charitable Status:

• Your activities must be solely for achieving your stated Charitable Purposes
• Do not engage in prohibited political activities of activities   i.e. excessive or political activities or partisan politics
• Do not engage in business activities that are not in furtherance to your charitable programs or are not substantially run by volunteers 
• Limit the use of your resources for social or fund raising activities
• Gift (support) only qualified donees
• Your activities must be legal

Registered Charity & Non Profit Corporate Governance Responsibilities

Non Profits and Registered Charities have ongoing Corporate Governance responsibilities that you need to understand. These include:

• Transparency – All activities of the organization must always be transparent.  I like to think of this as the headline story or social test – do the decisions and actions stand up to public scrutiny? If the answer is no or you are not sure then you need to make some changes
• Ensure there is no distribution of surplus to the members
• Activities must be charitable – spending practices of the charity must also support this
• Changes to your governing docuements and most importantly your objects must be approved by CRA
• Ensure the charities disbursement quota is met
• Ensure all activities are allowable activities in line with your charitable purpose(s) as was articulated to CRA
• Timely Completion of the annual reports: Annual Financial Statements, Non Profit Organization (NPO) Information Return or Registered Charity Annual Return, Industry Canada annual corporate return.
• Maintenance of accurate corporate records; minute books and financial
• Hold an open annual general meeting
• Proper receipting practices
• Proper procurement practices
• Accessibility of premises
• Key person succession planning; management and board
• Board code of conduct
• Employees: procedures, practices code of conduct

One of the more serious consequences of not following proper governance practices is loss of your status.  The CRA Charities directorate web site lists over 31,000 revoked charities.  The Top 3 reasons for the charity status being revoked are:

• Failure to file proper annual returns (most notably T3010)
• Improper Receipting Practices
• Inadequate or improper Corporate Governance practices including failure to practice allowable activities, inadequate charitable spending, inadequate record keeping, inadequate procurement practices

Operating a Registered Charity is a privilege.  It need not be onerous but from the foregoing you can appreciate when we say that a little due diligence can save time, money and disappointment.  Before you start your organization and ongoing as you operate your organization you need to be aware of and practice good Corporate Governance

In part 3 of this series we will explore the benefits of Strategic Business Planning.

For more information about this or other Blog topics or to reserve your free consultation, contact us.

We help organizations with interim management and business services expertise delivered via a team of associates with expertise across numerous specialities and industries, such as non profit services including accounting, financial management and planning, governance, due diligence and digital marketing.

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